2495 - Decoding Trump's Tariffs & Inflation w/ Mark Blyth

Summary

Podcast Summary: The Majority Report with Sam Seder — Episode 2495: Decoding Trump's Tariffs & Inflation with Mark Blyth

Release Date: May 12, 2025
Host: Sam Seder
Guest: Mark Blyth, Director of the William Rhodes Center for International Economics, Finance Professor at Brown University, Co-Author of "Inflation: A Guide for Users and Losers"

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1. Introduction

In Episode 2495 of The Majority Report with Sam Seder, host Sam Seder engages in a comprehensive discussion with economist Mark Blyth about the intricate relationship between former President Donald Trump's tariff policies and the ongoing inflationary pressures in the United States. The episode delves into the broader economic implications of Trump's decisions, the historical context of inflation management, and potential Democratic strategies to address economic inequality and housing shortages.

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2. Current Political and Economic Landscape

Trump's Tariffs and Inflation Impacts

Sam Seder begins by addressing recent economic policies under Donald Trump's administration, particularly focusing on the imposition of tariffs. At [08:08], he remarks:

"Trump has flipped again on tariffs still leaving inflation and recession threat. It's amazing I could do both at the same time."

Mark Blyth elaborates on the scale and uncertainty of these tariffs, noting:

"30% is still a massive tariff. And it's unclear if this is going to cause shipments from China to resume... It's also unclear whether there are businesses in the US that can sustain that bump in 30% cost of goods coming from China."

The discussion highlights the ambiguity surrounding the long-term effects of these tariffs, emphasizing the uncertainty businesses face in planning and investment due to fluctuating policies.

Executive Orders and Health Care Implications

The conversation shifts to Trump's executive orders, including a recent one aimed at prescription drugs. The analysis points out the potential short-term focus of such policies:

"Trump issues a feel good executive order on prescription drugs which will disappear within 31 days."

Sam also touches on Republican healthcare legislation, referencing the Congressional Budget Office (CBO) findings:

"Their nonpartisan CBO found the health provisions in the Energy and Commerce Committee Republicans bill will cut at least $715 billion and will result in 8.6 million more Americans going uninsured."

Market Reactions and Senate Dynamics

Mark Blyth discusses the impact of Trump's policies on the bond market and the broader financial confidence:

"Disciplined Trump basically he broke the bond market."

This section underscores the fragility introduced into the markets due to unpredictable tariff implementations and the potential for increased economic volatility.

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3. In-Depth Discussion with Mark Blyth

Defining Inflation: Perceptions vs. Metrics [26:54 - 32:10]

Mark Blyth offers a nuanced definition of inflation, contrasting official metrics with public perception:

"Inflation, the best of our definition, was given by Mrs. Thatcher... it's a rise in the general level of all prices."

He explains the disconnect between how inflation is measured (rate of change) and how it is experienced (levels):

"People are looking at levels of prices... if you're in the bottom 60%, inflation eats away what meager gains they've got."

Blyth emphasizes that official inflation statistics often fail to capture the real burden on lower-income households, who spend a higher proportion of their income on essential goods and services.

Historical Context and Lessons from the 1970s [32:10 - 39:40]

Blyth draws parallels between current economic challenges and those of the 1970s, questioning the predominant focus on monetary policy:

"Milton Friedman's famous line that inflation's always and everywhere a monetary phenomenon... that's the shorthand for what we learned."

He critiques the over-reliance on interest rate adjustments to combat inflation, especially when supply shocks are the primary drivers. Blyth references Alan Blinder's work, suggesting that discrete supply shocks require different policy responses than those traditionally employed.

COVID-19 and Modern Supply Shocks [39:40 - 46:58]

The conversation moves to the impact of the COVID-19 pandemic on inflation, analyzing various contributing factors:

• Supply Chain Disruptions: Increased costs due to logistical challenges and shortages.
• Government Stimulus: While stimulus measures contributed to inflation, Blyth argues they were not the primary cause.
• Corporate Profits: Highlighting the excess profits made by carbon majors during inflationary periods, which exacerbates income inequality.

Blyth posits that the multifaceted nature of modern inflation defies simplistic monetary solutions, calling for a reevaluation of economic strategies.

Interest Rates and Economic Outcomes [46:58 - 50:19]

Blyth discusses the Federal Reserve's response to inflation through interest rate hikes and questions their effectiveness:

"We started this time around, when employment went up, it didn't go down. That wasn't meant to happen."

He suggests that the typical models linking interest rate increases directly to reduced inflation are incomplete, as current economic dynamics exhibit different behaviors compared to past scenarios.

Tariffs as Policy-Induced Supply Shocks [50:19 - 62:35]

Mark Blyth analyzes Trump's tariff strategy as an intentional inducement of supply shocks to achieve re-industrialization. He critiques the practicality and economic wisdom behind such policies:

"Tariffs are a policy-induced supply shock... they are making things more expensive deliberately for this project of bringing industrial economy back to the United States."

Blyth argues that while the intention might be to protect and revive American manufacturing, the resultant economic volatility and uncertainty are detrimental, leading to decreased investment and potential recessions.

Implications for the Dollar and Global Economics [62:35 - 67:52]

The discussion shifts to the broader implications of Trump's economic policies on the global standing of the US dollar:

"Treasuries are information-invariant assets... Trump undercut the confidence in that premise."

Blyth explains how actions undermining trust in US financial instruments can lead to long-term shifts in global economic power structures, including potential moves away from the dollar as the primary reserve currency.

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4. Democratic Responses and Strategies

Addressing Inequality and Economic Mobility [70:38 - 78:42]

Mark Blyth critiques the Democratic Party's current stance on economic inequality, highlighting a lack of transformative policies:

"The Democrats have inadvertently become the party of the status quo... there was nothing there."

He advocates for robust strategies to mitigate wealth inequality, such as:

• Expanding Vocational Training: Accelerating the training programs to equip the workforce with necessary skills.
• Increasing Housing Supply: Simplifying regulations to facilitate the construction of affordable housing, thereby reducing housing costs and enhancing economic mobility.

Blyth underscores the importance of deregulation to enable significant infrastructure projects, including housing, which could alleviate economic disparities and stimulate job creation.

The Abundance Agenda and Housing Crisis [73:21 - 78:42]

The conversation delves into the "abundance agenda," a Democratic strategy aimed at addressing scarcity through market and policy interventions:

"Just build houses. It's amazing what would happen if you'd build houses."

Blyth emphasizes the need for comprehensive approaches to expand housing availability, combatting regulatory barriers that inflate housing costs and restrict supply. He highlights the detrimental effects of policies like conservation easements, which inadvertently contribute to housing shortages by limiting development opportunities.

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5. Conclusion

The episode concludes with reflections on the intertwined nature of tariffs, inflation, and economic policies. Mark Blyth and Sam Seder underscore the complexity of modern economic challenges, advocating for informed and multifaceted approaches to policy-making that go beyond traditional monetary solutions. The discussion highlights the necessity for strategic deregulation, investment in housing and vocational training, and a renewed focus on addressing systemic inequality to foster a more resilient and equitable economy.

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Notable Quotes

• Sam Seder on Tariffs and Inflation:
  "Trump has flipped again on tariffs still leaving inflation and recession threat. It's amazing I could do both at the same time." ([08:13])

• Mark Blyth on Inflation Experience:
  "The poorer you are, the more you spend... If you're shopping at Dollar General and prices go up 10%, you and your family have to have a serious conversation about what you're going to do without." ([28:59])

• Mark Blyth on Supply Shocks vs Monetary Policy:
  "If you think inflation is all about breaking the psychology of rising prices, you jack up interest rates... but according to Blinder and other people, following the supply shock version, you didn't need to do any of that." ([39:36])

• Mark Blyth on Housing Solutions:
  "Just build houses. You need to revamp all your training. And housing these days is very different from housing back then." ([75:23])

• Mark Blyth on Democratic Strategies:
  "The Democrats have inadvertently become the party of the status quo... there was nothing there." ([70:47])

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This summary encapsulates the key discussions from Episode 2495 of The Majority Report with Sam Seder, offering listeners a comprehensive understanding of the intricate dynamics between presidential economic policies, inflation, and the broader implications for the American economy.

Transcript

[Sam Cedar]

Hey folks, Mother's Day has passed but you can still give a gift to your mother. And I mean you could always give a gift to mother or father or anybody for that matter. But what is the gift that your mom wants? Your presence. Not literally the T but with the C, however the other one is spelled. Yes. The point being you can, you don't actually have to be there every day to be there every day. What am I talking about? I'm talking about Aura frames. They are super easy to set up. Takes about two minutes. Setting up the Aura frame with your Aura Frame app. It has free unlimited storage which means you can put as many 30 second videos or live photos or still photos up there. The frame has audio embedded in so it can hear, you know, if you got a video, the sound will come out of it. The photos look like real prints or frames have meticulously calibrated high resolution, high resolution displays. It is a great gift. I just recently gifted my girlfriend's parents 1. They have a lot of kids, a lot of grandkids. They had it set up in about like literally two minutes and they all had apps. There was something like 400 photos on the the frame literally within like an hour. And they just texted me last week and said we're going to buy like six more because they're going to give it to the kids and they're going to have a couple in their house. Super easy to upload photos. Just take it on your phone, put it on the app. You can put. Many people can have an app to your frame. You give it to as many people as you want to feed it and you can have an app that sends it to multiple frames. Really amazing. And Aura has a great deal for the wake of Mother's Day. For a limited time, listeners can save on the perfect gift by visiting auraframes.com get $35 off plus free shipping on their best selling Carver Matt Frame. That's a U R A frames.com promo code. Majority support the show by mentioning us at checkout. Terms and conditions apply. And now time for the show. It is Monday, May 12, 2025. My name is Sam Cedar. This is the five time award winning majority Report. We are broadcasting live steps from the industrially ravaged Gowanus Canal in the heartland of America, downtown Brooklyn, usa. On the program today, Mark Blythe, director of the William Rhodes center for International Economics and Finance professor at Brown University. Also co author of his latest Inflation A guide for users and Losers. We'll talk about inflation and Trump's pirouette That's right. Trump has flipped again on tariffs still leaving inflation and recession threat. It's amazing I could do both at the same time. I can walk and chew gum. Meanwhile, Trump issues a feel good executive order on prescription drugs which will disappear within 31 days. Hamas to release US hostage in Gaza. Meanwhile, Republicans big beautiful bill will devastate American health care or at least so says the nonpartisan CBO. Trump enraged by complaints of him accepting a $400 million plane from Qatar. Pakistan, India agree on a ceasefire. Zelensky agrees to meet Putin. ICE now moving prisoners to escape court rulings. This after the mayor of Newark arrested for protesting outside an ICE detention facility. Iran and US Conclude fourth round of negotiations. FEMA cuts emergency training just in time for hurricane season season. Lastly, Twitch streamer. Hassan Piker, who's that? Detained upon return from France to discuss Twitch drama. I kid you not.

[Emma Vigeland]

Jesus.

[Sam Cedar]

All this and more on today's Majority Report. Welcome, ladies and gentlemen. Thanks so much for joining us. It is Sunday.

[Emma Vigeland]

Monday.

[Sam Cedar]

Look who's back.

[Emma Vigeland]

I am back.

[Sam Cedar]

Look who's back.

[Emma Vigeland]

I'm back. A little worse for the wear, but I'm back.

[Sam Cedar]

There you go. You've recovered.

[Emma Vigeland]

Not quite. Maybe tomorrow. But shout out to my the fans that I ran into down in South Carolina. I will dox myself now. That's where I was for my little bachelorette party. We were at home team barbecue. Had some great conversations with people who came up to us. So thanks so much for all the love. And it's pretty down there. It's nice. I got to go to the beach, eat some good food. You know, it's a group of 11 people. So that was a little difficult at times, but we made it through.

[Sam Cedar]

Oh, well, that's why you guys don't get invited places. There you go.

[Emma Vigeland]

Group trips past the age of 30. I feel like present a bit of a different set of challenges that have to be overcome.

[Sam Cedar]

Yeah, I can only imagine. And I do mean that literally because I have never, ever had a group of friends.

[Matt Binder]

Sam's avoided that like I tried to avoid that.

[Emma Vigeland]

Perhaps you. Yeah, perhaps you.

[Sam Cedar]

1.7 friends and I averaged that out over the course of a 40 year.

[Matt Binder]

You're getting Zuckerberg's number down.

[Sam Cedar]

Exactly.

[Emma Vigeland]

Obviously you don't include Benjamin in that Average. Right? He's on the out on the outs.

[Sam Cedar]

Shout out. Shout out.

[Matt Binder]

John Benjamin. He was in the new Zoron ad.

[Emma Vigeland]

He was.

[Sam Cedar]

Yes, the. He did perform in the new Zoron ad. Speaking of travel, though, moving on, we should just say I I didn't mean to, like, undersell the what happened with son Piker. I would tune into a show this afternoon to get more details, but the guy flew in from France and was stopped. And they apparently, like, have been paying attention to at the very least, what he's been streaming about.

[Emma Vigeland]

Right.

[Matt Binder]

Hard at work.

[Sam Cedar]

Yeah. It's good thing that we have Ice on the ball. Spending their time watching Twitch shows and reading Reddit hype trains.

[Matt Binder]

Get on the hype train. Ice.

[Sam Cedar]

That's right. Poggers. I don't know if they, if they said that to their phones.

[Matt Binder]

Burning a hole in their pockets as they have Twitch Live.

[Sam Cedar]

Yeah, we've been talking, you know, just sort of like, at what point do they start coming after the streamers? And I guess we're getting a better sense understanding soon.

[Emma Vigeland]

Yep.

[Sam Cedar]

But we'll see. First, we got a lot to get to today. There was an executive order about pharmaceuticals. We'll get to that in a bit. I wouldn't hold your breath as to prices going down, but we'll see. Unlikely. In the meantime, the real story, as Donald Trump obviously has flipped on the tariffs to some extent, de minimis tariffs still exist. There is still a 30% tariff on goods coming in from China. Yesterday, apparently at the Port of L A was the first day in ages that there was no Chinese vessels there. Or vessels coming from China stealing from us. Exactly.

[Emma Vigeland]

So we've saved so much money because of that. I mean, aren't you guys feeling it?

[Mark Blythe]

The.

[Sam Cedar]

It's unclear, you know, if we can avoid the recession, but. And you know, I can't take really much credit from this. Someone had mentioned this to me, that Trump was going to do something on Mother's Day. And as I had said last week it happened, 30% is still a massive tariff. And it's unclear if this is going to cause shipments from China to resume. They were able to knock down, you know, it's unclear to me whether we're going to see those shipments come down. They were able to impose a 10% tariff on US and maintain that. It's also unclear whether, you know, there are businesses in the US that can sustain that bump in 30% cost of goods coming from China. I guess we'll see. And also, it's only 90 days. So to the extent that anybody has any clarity as to what's going on 91 days from today, nobody knows.

[Emma Vigeland]

It still has that problem of insecurity which chills investment in the country. If people don't know if these insane tariffs are going to resume in 90 days. This is part of why you can't do policy this way.

[Matt Binder]

Say, like, decide I'm going to build a factory because, well, maybe I won't need that factory after 90 days.

[Sam Cedar]

Right. What if I had a football team and all we did was punt? Would it. Because we wouldn't lose. No one would ever be able to get the ball because every down will punt, punt, punt until the clock runs out. But one other thing people should be paying attention to. Scott Bessant apparently is worried about a, a debt ceiling breach come September. And he's now asking the Republicans to raise it in July so that it's decoupled from their big beautiful reconciliation bill. Because people are starting to get the idea that Republicans don't have the ability to govern because their party, as homogenous as it is, it has a very small majority in the House and they can't seem to agree with on just how much pain they want to inflict on the American public for the sake of tax cuts for rich people. And so some people want a lot of pain and some people want that much more than a lot pain. And here's AOC talking about a Congressional Budget Office. They, what they do is they score bills as they are in nascent sort of development form so that lawmakers have an ability to assess whether they're going to work within the context of reconciliation. How much tax cuts can we get is really what the Republicans are asking by cutting Medicare and the Medicaid. Excuse me, Medicaid?

[Emma Vigeland]

Yeah.

[Sam Cedar]

CBC. CBO determined at least 13.7 million more Americans will go uninsured on Trump and congressional Republicans new bill. Their nonpartisan CBO found the health provisions in the Energy and Commerce Committee Republicans bill will cut at least $715 billion and will result in 8.6 million more Americans going uninsured. In addition, the CBO determined that 5.1 million will go uninsured as a result of Republicans refusing to, to extend the Affordable Care act tax credits.

[Emma Vigeland]

And this is in conjunction with the $1 trillion that Trump is proposing for the military budget, which would be, if you were to adjust for inflation, a similar kind of proportion of our budget that we had during World War II. And we're not in wartime and, and like that's what we need to raise apparently the military budget by $119 billion because all those defense contractors who get over half of that chunk need some of their, need their money to their taste.

[Sam Cedar]

So, and here is AOC.

[Alexandria Ocasio-Cortez]

Right now. There is a link in my bio. Ocasio Cortez.com/save Medicaid. Whether you're a New Yorker, like me, whether you're a Michigander, whether you're from Pennsylvania, Colorado, huge amounts of your state budget comes from Medicaid. The way Medicaid gets dispersed is actually by the states. And so Medicaid is paid for by a combination of state and federal match money. In wealthier states, the federal match is lower. So, for example, in New York, the match is one to one. For every $1 that New York spends, the federal government spends $1. Other states like Kentucky, they actually get a higher federal match. Around 70% of their Medicaid disbursements are paid by the Federal Government and 30% are paid by the state. And so what that means is that for so many state budgets, a huge amount of the money that comes in for the state budget in general comes in through Medicaid financing. And so if you touch Medicaid, you are also blowing a massive hole in a lot of state budgets, which are going to affect schools, which are going to affect lots of other things. To make up the difference, I've been sitting through all these committee hearings. The highest number that the Republican Party has advanced forward in terms of what can be attributed to, quote, unquote, waste, fraud and abuse, the highest number they have is $50 billion. Even if you believe everything that they say, with no evidence, if they've identified $50 billion in waste, fraud and abuse, why are they cutting $880 billion, nearly a trillion dollars? The reason for it is because they have been assigned to find $880 billion because they are going to give $880 billion to billionaires in tax cuts. That is why you should go to the link in my bio, look up, see if your representative is on that committee and make a call and tell them, do not vote for this reconciliation bill. Do not vote for this markup bill.

[Sam Cedar]

So this, this bill right now, just to remind people of the process, it starts with a resolution that took place months ago. And essentially the top line is we're going to require these three committees. I'm just making that up. But I think in this instance, it was like, you know, the bulk of it was these three committees to find this amount of cuts. And one of those committees was the one responsible for Medicare. And within their portfolio of all the money that they spend, it became very obvious when they're supposed to deliver over $800 billion worth of cuts, a lot of that's going to come out of Medicare, Medicaid. Excuse me.

[Emma Vigeland]

Okay.

[Sam Cedar]

And they were able to get past that part of the process. But now that it's going down, you've got committees that are working on like these, these are the type of tax cuts we want to extend the Trump tax cuts. And then you've got Republicans in like New York or California who the only value they bring to their constituents more often than not a wealthy community is a reduction or I should say the resumption of salt cuts, which are basically offsets. Prior to the Trump tax cuts, if you paid a property taxes, state taxes, local taxes could be deductible on your federal taxes. That went away as a way for Trump to punish high tax blue states that provide services for their people. Like AOC said in New York, New York covers 50% of the Medicaid payments, so can expand and be more generous with how many people get Medicaid in the state. Whereas Kentucky relies on the federal government for 70% of their funding. And that's the way they keep their taxes low. And so it doesn't matter if you're a rich person in Kentucky and you pay your, your, your real estate taxes because they're so low relative to New York. Now, with that said, this is a rich person's tax deduction.

[Emma Vigeland]

Yes.

[Sam Cedar]

And these Republicans want it. And these moderates are afraid, like if I don't deliver this, what's the value of me to my constituents? And so they're balking at this. Meanwhile, other conservative, hyper conservative lawmakers are saying, well, we need more cuts than just what you're talking about with Medicare because we need these tax cuts for Republicans. So they are having trouble balancing essentially these competing forces and they are constrained, at least for the time being, by thing called the Byrd Rule, which means that the reconciliation bill, if it only needs 50% votes in the Senate as opposed to being subject to a filibuster, must be budget neutral. And so you to get these tax cuts, you need to offset them. Now, they're going to try a lot of different like accounting tricks and whatnot. But Scott Bessant's worried enough that he's saying, can you raise the debt ceiling before you get to this whole reconciliation thing? Because I'm getting a little nervous.

[Emma Vigeland]

It'll be interesting to see some of this schism because if you saw yesterday, or maybe it was this morning or yesterday, Josh Hawley took out an opinion piece in the New York Times saying not to cut Medicaid because Missouri is one of the 40 expansion states under the Affordable Care act.

[Sam Cedar]

Whoopsie.

[Emma Vigeland]

Now, some 21% of Missourians benefit from Medicaid or CHIP, the companion insurance program for lower income children, he writes. And many of our rural hospitals and health providers depend on the funding from these programs to keep their doors open. And those are the bodies that actually engage in waste, fraud and abuse. And they're not looking into that relationship.

[Mark Blythe]

Right.

[Emma Vigeland]

The middlemen that take out money from that. But it'll be interesting to see where the Republican divide lies because there are Florida, South Carolina, I think Tennessee, other states that haven't expanded Medicaid versus a guy like Josh Hawley, who's maybe in a more precarious situation in Missouri, where now, as he writes, over 20% of his constituents are enrolled in this. It's a major, major thing and it will immiserate people if this goes through.

[Matt Binder]

Half of rural births in this country are covered or about half are covered by Medicaid.

[Sam Cedar]

Yeah, we shall see. But they supposedly were going to have this markup stuff done by Memorial Day, which is in about 10, 12 days, somewhere around there to 90 days. Everything's in 90 days, two weeks away. 90 days in two weeks.

[Emma Vigeland]

Wasn't that the TikTok ban that was supposed to be 100 days or something like that? And then it's coming back. They're going to look into it. Nothing's happening.

[Matt Binder]

Look at it in 100 days.

[Emma Vigeland]

He has a, he has a tic tac shaped hole in his heart.

[Sam Cedar]

But we shall see. They're already getting worried about that. More the Memorial Day deadline for having this bill in some type of shape, getting all the markups done in these committees and we shall see. I don't know if these guys want to work over the summer, but Passant definitely wants them to get the debt ceiling because even with Even if the 30% tariff rate, if they had just instituted that and you weren't going to get the supply shock that is coming down the pike. I think Bessant is very worried about where we are in terms of the economy, but we'll see. In the meantime, a couple of words from our sponsors and then we'll be talking to Mark Blyth, director of the Rhodes center at Brown University, also a professor at Brown and author of Inflation A Guide for Users and Losers, which is out now. First off, oh, yeah, this I, I scored a hit with a gift of these PJs the other day.

[Emma Vigeland]

Oh, as did I.

[Sam Cedar]

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[Emma Vigeland]

Right. I can believe.

[Sam Cedar]

Yeah, okay.

[Emma Vigeland]

All right.

[Sam Cedar]

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[Mark Blythe]

That's great to be with you.

[Sam Cedar]

Let's start with. I'm going to start with the book and we're just going to sort of blend into what's happening literally today. But the inflation. Your argument is that when we talk about inflation we often get it wrong, at least in terms of the impetus and it often in the response. But why don't you just start with like, basically like what is inflation the way that it's defined popularly and what is it actually?

[Mark Blythe]

All right, so let's do it this Way inflation, the best of our definition, was given by Mrs. Thatcher, and I can never find the source, but I'm sure she said this, which is, it's a rise in the general level of all prices. So it's not when houses get marginally expensive, it's not when a particular part of the market gets suddenly really expensive. It's when everything goes up. Okay? Now, remember last year and the year before, there was this whole conversation about the disconnect between the way that people were feeling about inflation and the official numbers. There's a huge insight in that moment and to like, the whole core of this thing. Right, so let's think about it this way. Have you got a glass of water with you, Sam?

[Sam Cedar]

No, I've got a cup of coffee.

[Mark Blythe]

All right, Just go with a cup of coffee instead. Right? Imagine we could see through that coffee. When people like me talk about inflation, what we're interested in is the rate of change of the level of prices, right? The delta, if you want to be fancy about it. And that's a bit like looking at the surface tension on the glass of water. Now, if you're a normal punter, you don't care about that. What you care about is the level of water. Now, the level of water is the level of prices. What people experience is the level was here and now it's here. So when my people say, yeah, but the rate of inflation slowing, and they say, yeah, but eggs still cost 12 bucks, what are you talking about? They're actually more correct because what they're looking at is the total level of prices. Now, why does this become.

[Sam Cedar]

It's almost analogous to what happened today with, or I should say, over the past 24 hours with tariffs on China. Putting aside any relationship between tariffs and inflation, if you start at 145 and go down to 30, you're still at 30. Yeah, exactly six weeks ago, we were at whatever 10% or 0 or 0.

[Mark Blythe]

It's A levels question. It's a levels question. Absolutely. Right. Now, why does this matter and why did you get this big disconnect? Well, you know better than most that we're living in possibly the most unequal economy that we've seen in 100 years, if not more so. The bottom 60% of the income distribution in the US hasn't had a real wage increase in decades because inflation's eating away what meager gains they've got. Imagine that you're spending 60%, 70% of your disposable income on consumption goods. This is what inflation measures. Why CPI consumption, the poorer you are, the more you spend. If you're shopping at Dollar General and prices go up 10%, you and your family have to have a serious conversation about what you're going to do without you're in the top 10%, you're shopping at Whole Foods. You clearly don't give a shit about inflation anyway because you're shopping at Whole Foods. But you also use a much smaller proportion of your income for direct consumption. The way that people actually feel and experience inflation is hugely different across the income distribution. The professional classes are looking at the rate of change, ordinary people are looking at levels. And if you're in the bottom 60, that squeeze on levels really hurts. If you're in the top 10%, you barely notice and in fact you're probably winning because equities are going up at the same time you're making it that side of the equation rather than losing on the inflation side.

[Sam Cedar]

And when we talk about what is measured in inflation, a lot of the things that are measured in inflation, or I should say aren't measured as inflation because they have other drivers of increases that aren't necessarily universal. Those things tend to be the most important, particularly if you have, if you're in that, like, I don't know, the bottom 70, 80% of the income distribution.

[Mark Blythe]

And this is where rents become really, really painful. I mean, a large part of what's still driving inflationary forces in the US is a long term problem, which is we stop building houses for normal people sometime around 1980 and we turn the entire housing market into an asset class. And that's why it's ludicrously expensive. Now, started by saying that that's not an inflation. Well, it's not, but again, it's about your personal consumption. If you spend a 30, 40% of your income just paying the rent. And basically what happens is the Fed takes rents and adjusts them and plays with them to make them statistically comparable and they worry about the volatility of etc. Then the Fed talks about core inflation, which is you take all these volatile items out. Well, what do these things include? They include things like fuel, they include things like food, they include things like the way rent is adjusted. So essentially you end up with this figure that looks like 4% or 5%, but people are paying 40% of their income and rent, they're like, this is not the inflation I'm experiencing. Absolutely not. So again, that disconnect that people felt was very real.

[Sam Cedar]

Let's go back to the 70s and talk about Inflation then? Because one of the things that has occurred to me over the course of particularly watching the inflationary pressures of COVID and what drove that is there is there seems to be some type of like, disconnect between the idea that prices are going up and that the fix for inflation seems to be static, regardless of what might be driving it at any given time. So let's. And in part I think your argument is, is that this, this is a function of what? Of learning the wrong lessons in the 70s.

[Mark Blythe]

Yeah, that's exactly right. And it's not even our argument. What happened is this an ex central banker and economics professor called Alan Blinder, and he's actually been going on about this for years. He's got a whole series of papers on this and it kind of makes sense. Right, so here's the basic story. When Europe's inflation rates went up in 2022, what happened? Basically, they had no gas anymore. They've been importing it from Russia. Right? So suddenly you don't have any gas. You've got to scramble for gas. Oil prices go up, but European prices go up, all that sort of stuff. And then your response is, let's look at the labor market and let's raise interest rates. What does one have to do with the other? This is clearly just a big supply shock. You can't get supply prices go up. Now, interest rates are part of the response to that, because if is the case that basically these prices are going to go up, you want to chill the economy a bit so it doesn't get out of control, et cetera. But the fundamental story that we get is it's money that drives these things. There's two basic narratives. The first one is the government spends too much money. This is the Biden stimulus thing, which falls down on the fact that there was one Biden stimulus. But about 30 countries got inflation, so they can't all be blamed on that one. Right? Which is not to say that it can't be important, but it can be universally important. And the other one's the labor market. Basically the labor market's too tight. People are going to bid up wages, prices will go up, you get caught in the spiral. None of that seemed to actually describe what was going on in 2021, 22 and 23 pretty much anywhere. And to their credit, the central banks figured this out by about 2023. The European Central bank figured out that 40% of the inflation they were facing was literally price gouging from companies. And they actually admitted that. But a lot of this comes back to the 1970s. You'll remember Milton Friedman's famous line that inflation's always and everywhere a monetary phenomenon. That's the shorthand. That's the shorthand for what we learned.

[Sam Cedar]

For the sake of like, you know, this may be a little bit rudimentary, but explain to us when we say monetary policy versus fiscal policy and then these other elements that can drive, you know, logistics, supply shocks, whatnot.

[Mark Blythe]

Yeah. So the basic story that I was trying to get at the harm handedly is the following. We look for monetary causes for inflation, right? And what that means is the there's too much money chasing too few goods in the economy. So what you want to do is increase the price of money, the interest rate jacks up so that you counteract those forces. But if what's driving inflation is ultimately a series of supply shocks, logistics, ships not arriving, you can't get what you want, what you need, etc. Then it's not clear that that's the optimal response. There's going to be other ways of dealing with it. And again, as you said, Sam, this comes back from this particular reading of the 70s, but a very interesting. These papers by Alan Blinder challenge us and say what actually happened was a whole series of discrete supply shocks. Everything from fighting the Vietnam War off the books, incorporating women in the labor markets for the first time at scale. The same with minorities, failed wheat harvest, oil shocks. All this sort of stuff came along in the 70s and it lasted a decade, but it was actually a bunch of discrete supply shocks. And if you see it that way, money is not really your problem. And controlling the money supply or the interest rates or whatever, it's about adjusting the supply side of the economy so that the inflationary pressures dissipate. And this is kind of when you learn the lesson of the 70s, it's always an everywhere a monetary phenomena. You reach for interest rates. And then we figured out this time around employment went up, it didn't go down. That wasn't meant to happen, remember? So the responses we got this time were weird, which is what made us kind of start thinking about this.

[Sam Cedar]

Okay. And I want to just, you know, slow down just a little bit so that people, you know, in starting from the end backwards, the Fed has a dual mandate, and that is to keep unemployment as low or employment as high as possible, but also to keep inflation under 2% and they can change that target rate at different times. So back in the 70s, the assumption was that people just simply we had put too much money into the system. And that there was just two people. Too many people had too much cash and they were going out trying to buy goods. But talk about how, let's just start with Vietnam. You've got a lot of people go into the military. How does that impact, how does that create a supply problem, as it were, either for labor or for anything else?

[Mark Blythe]

Well, labor's the easiest one. When you've got half a million people tied down fighting the war in Southeast Asia and you don't really want to raise taxes, you're going to have to fund that some way. And you do that by allowing the deficit to rise. When you've got all those people not in America doing things, they're off doing something else, then you're going to have incredibly tight labor markets. That means that anybody who wants a job in that environment is probably able to get a higher paying job. So you're bidding up wages because of the tightness of the labor market. That would be one example as to how this works. Let's take the oil shocks in 74, 79. This is America as a much more industrialized economy. This is still the heyday of manufacturing, et cetera in the United States. So oil is this input that goes into everything. When you could quadruple the price of oil, the prices that everything comes out the other end of that, they're going to have to be more expensive. You have all these different forces that are all pushing in the one way, which is basically you've got a fixed amount of stuff in the economy and you create an excess demand because there's too much money chasing it and that means prices has to go up. That's the basic story. And it's not completely wrong. It's just incomplete for the moment that we're in.

[Sam Cedar]

Well, okay, so why is the, was the response to that, okay, if you have these different sort of like supply bottlenecks, a supply of labor, a supply of fuel, essentially, if you have these supply bottlenecks, why is it just that the only response is we need to essentially readjust people's expectation and ability to access labor, to access oil or fuel, or access whatever goods that we need. And so the only way that we have to control that is essentially to make them poorer. Right. I mean that that's what, when we, when we talk about raising interest rates, that's what's supposed to happen downstream is that people have less money, which is.

[Mark Blythe]

Why it's so interesting. This time we raised interest rates and more people were employed rather than less. So it tells you something weird. Is going on. But that's exactly the model. That's exactly the way they're working with it. And we started this.

[Sam Cedar]

Was that just like puritanical? I mean, what like, is that just some type of moral.

[Mark Blythe]

No, it makes sense thinking from the point of view. You got to think about this word expectations. It's not like changing your expectations to access labor or something. The way that we began to think about inflation as a problem problem in the 60s was really about expectations. Right. So if you see prices rising now at a certain rate, what are you going to do? You're probably going to try and buy things now. When you try and buy things now to compensate, what does that do? It creates a shortage, which pushes up the price. So what do you then do? Well, you try and get ahead of it again. So you begin to expect rising prices. And the argument that Paul Volcker made and basically became the wisdom was you got to break these expectations, people have to not expect rising prices. And that's a huge part of the control valve for doing it. Now, the other side of the story on that one is if it's really just a bunch of supply shocks, like eventually you stop fighting the Vietnam War, eventually American industry adjusts to higher fuel costs. You don't need to do that because it's not really a story of expectations. If you think it's all about breaking the psychology of rising prices, you jack up interest rates, you make people poorer, and that shatters the expectations. But according to Blinder and other people, following the supply shock version, you didn't need to do any of that. All those forces were on the way out by the early 1980s. So what you did was you just created a huge destruction of American capital and jobs for no apparent reason.

[Sam Cedar]

Well, that, that to me feels like what happened during COVID I mean, there is an obvious story as to why.

[Mark Blythe]

This is why we went for the book. Exactly right.

[Sam Cedar]

I mean, there's an obvious story as to why we had, you know, inflation. I mean, frankly, you, you could find this with a lot of different, you know, social phenomena, like why is there more crime? Why is there, I don't know, it could be this one in a lifetime, knock on wood event that just took place. And the fact that a container ship cost three times, four or five times what it did six months earlier because it's in some far flung part of the world and we don't have access to it.

[Mark Blythe]

That's exactly it. Now, if we think that follow that through some. Right. What does it tell us? It tells us that it's these, to use lack of a better word, supply shocks, right. Basically you can't get what you want at the price you're used to. Now you're going to have to pay more. Let's think about tariffs for a minute. What is tariffs? Tariffs are a policy induced supply shock. Now usually what you're trying, and this is why the Fed treads very carefully at the moment, right? What you're trying to do if you're the Fed, is you're trying to create an economic environment where you don't get big shocks. And now you've got a guy in the White House who's determined to create big shocks. And these are supply shocks. They are making things more expensive deliberately for this project of bringing industrial economy, industrial jobs back to the United States. So imagine a world in which it's not just once in a lifetime events like Covid. We now start to shock ourselves. That means that you're not going to get these once in a lifetime events. Let's think about climate change. What is climate change? Climate change is basically a giant supply shock inducer. Whether it's droughts, whether it's breakdown of food webs, whether it's simply things being too hot to farm in certain areas, all of this stuff coming down the future means that we need to get more attuned to the idea that inflation is going to be around a lot more than it was for the past 30 years.

[Sam Cedar]

What I still can't sort of wrap my head around is that there's, and Covid seems to be having lived through that period. It seems to be the most obvious example. If Blinder could see that there was a series of supply shocks, why was there seemingly very little effort? If it's about breaking expectations, to articulate this, is it just a sense that like no one's going to listen to us anyways, we just need to literally take more money out of people's pockets?

[Mark Blythe]

Yeah, I think that's, that's, that's a pretty good way of summarizing actually. Like we looked into this in the book. We were like, okay, expectations, right? So it's all based on this weird model whereby the central bank sets these expectations as to what monetary policy will be, which basically means what interest will be and how much credit will cost. And then the public internalizes this and then they adjust and they're like, does this really happen? Do people really think this way? Turns out there's remarkably little evidence that actually that is the mechanism. One of the favorite papers I discovered doing the research on this was one from the bank of Spain. And they basically scraped the web of New Zealand, who knew you could do this? And they basically looked for people in the financial sector in New Zealand to figure out if they were at least listening to what the central bank was saying. It turned out you were thousands of times more likely to pass your mate and finance a puppy video than to actually pass around a central bank forecast. If that's not the mechanism, what is it? And I think, Sam, you've got it. Which is essentially, look, if prices are rising too high and it's got something to do with people expecting higher prices, let's make things really expensive so that they calibrate those expectations down. That's basically what the model is. The question is if it's a supply shock, that's really different from an expectations thing. Right? One of the mechanisms in your head, that's what's driving it up. The other one is you just don't have shit anymore and it costs more. And it's not clear that if you're trying to play an expectations game against the supply shock, you're going to win because the supply shock doesn't care what your expectations are.

[Sam Cedar]

So let's go through Covid because I'm also sort of fascinated by like the, the ineffectiveness, it seems to me, of the, the rise in interest rates in this country anyways. Like, it's, it's unclear to me that that's why inflation went down as opposed to, well, and, and people started getting pissed. I mean, accordingly, you know, according to corporate America, Joe Biden was very hostile to them, which I think is a little bit of an overstatement.

[Mark Blythe]

Despite the fact that corporate profits as a percentage of GDP are now at 12 and a half percent, are the highest they've been in history. So the Biden economy was really terrible. Right?

[Sam Cedar]

Well, but there was a rhetorical sort of like, disposition towards corporate America and certainly maybe out of like the FTC that basically said, we're not going to let you get away with this. So, I mean, do we really have a definitive sense of like the inflation that we went through in the wake of COVID And during COVID was a function of X percentage logistics, X percentage of, of profiteering, and then X percentage of. Well, Americans, you know, had extended unemployment. We took half of our children out of poverty for a year, which of course means that they're buying more stuff, right? You know, food or maybe a toy or something like that. We had more money in the economy than we would normally have, at least in Terms of being put out there by the government. Do we have a sense of like what the balance of those three elements and if there is another one as to what contributed to the inflation?

[Mark Blythe]

Yeah, there's loads of these so called decomposition analysis that are out there and you can tweak them a little bit. But essentially what it says is that the Biden stimulus checks or the big deficit etc. Did it contribute to inflation in the United States? Probably. Was it the majority cause? No, because it was simply that that meets a supply shock. If you give people more money because they're poor and you want them to survive. Covid at the same time as you can't get anything that's going to add pressure to prices, it simply has to. But if you look at a like Germany, they had inflation too. They had very high inflation actually for a brief period. And that had nothing to do with stimulus checks. That had everything to do with the fact that the gas price just went through the roof. And they're an incredibly gas dependent economy. So it varies by country. There's no one accounting on it. The most controversial one remains price gouging in the sense that you can cut it up one way and basically show that people were just protecting the profit margins. They were absolutely pushing prices but nothing changed in terms of their net margins. But you can count it another way as the European Central bank has done and said no, they actually really took advantage of this and pushed through and got prices through. There's also windfall profits. We don't think about it often enough but there's a good analysis in 22 from UMass that came out that basically said Americans carbon majors, the big oil companies, made 220 billion in excess profits in 22. Now if you think that 50% of all shares are owned by the top 1% and half of that money is disbursed to shareholders, that means that the top 1% of America got over 110 billion just from owning carbon shares at the time of the inflation which massively offsets any losses that that class would have ever made from inflation. So the distribution of politics of this gets really wild.

[Sam Cedar]

Why? When the Fed raised interest rates of course it made it, I, it made rentals and home ownership just go through the roof in terms of expense. And it kept people sort of locked in where they were on some level. Like people couldn't even downsize without totally to save money. I mean you could not sell. There was, you know, and, and so there was at least, I mean I read a little bit and I didn't see this terribly developed, but that. That this rise in interest rates was actually having the opposite effect as one would have anticipated. Was that because it wasn't. I mean, was that the case? And if so, why?

[Mark Blythe]

So by the opposite, what you mean is that higher interest rates lead to higher prices?

[Sam Cedar]

Yeah, we were actually like driving up prices for things and, and that it was. I mean, I think there was a lot of probably like AI plays or Internet plays that went under because all of a sudden they had to start making money to pay their employees instead of just keep rolling over these like 2% or 3% loans. But aside from that, like, what did it really have the impact that we want? Or was it just sort of like coincidental that inflation started to slow down because the logistics and the sense that you could get away with it went away.

[Mark Blythe]

I would personally go with more of the latter. Right. Basically what you have is a phenomenon with inflation where you get hit with a big shock and then it goes up. There's a kind of like impulse shock goes up and then it peaks and then ultimately the economy adjusts in various ways and then it starts to decline and it dissipates. Right. And we got hit with a couple of those. There were logistics shocks, there were energy shocks, et cetera. And they take time to work out. I would definitely go with that one. If you think about it the other way around, it's interesting. Imagine it's just a pure expectation story. People begin to have these unhinged expectations and that's what we have to control. Then it becomes really interesting as to why central banks were very timid this time around. People talk about these unprecedented rates. They were unprecedented because it was at zero. At no point did it actually go up above the actual rate of inflation in any of the places that we examined. Now why was this? Because that dual mandate actually means something. When Volcker was elected, and it was a feeling that this was unprecedented. The post war model was falling apart. There was this nightmare of inflation. It was close to 20% in some places that we needed to do this. Now, whether we need to do it or not, we kind of touched on it, but that was the feeling. You did this and you got this really big recession that people were not bargaining for this time around, particularly in Europe. Think about what Europe's been through. It went through the financial crisis, the bond market crisis, then it did a decade of basically the damage control from the austerity stuff that they did. They haven't grown in 10 years. They've got high Unemployment in many countries, huge debt levels, and the central bank's going to jack up interest rates like Volcker did. The place would be on fire. There's no way that they had the room to do this. So they were very careful about how much they were doing it. And as they went through it, they started to look at different things. They were like, okay, maybe we need to not think the labor market's driving this. Maybe this is not excess spending, because the problem in Europe is governments haven't been spending. That's the damn problem. So then they started to look at the supply side, Then they started to look at price gouging, and they ended up with a much more nuanced view by the end of it than a kind of like pure Volcker Jack the rates up and caused the recession model. They just didn't want to do that this time around because they thought the political price would be too high.

[Sam Cedar]

Oh, that's interesting. So the politics of the day made them go slower, and going slower made them be able to sort of have more inputs and see what the implications of their rise was. All right, so let's, let's jump forward to where we are sort of today.

[Mark Blythe]

I mean, fun times at Richmond.

[Sam Cedar]

Yeah, we're pre taping this, you know, a couple hours before the show, so everything could be different by the time we get to airtime. But so Trump comes in. Does anybody, like, have an idea as to why he's imposing these tariffs? Like, we saw the tariff regime, you know, in his first term, 10% on China. People didn't pay too, too much attention to it. Then we saw tariffs employed in the context of the IRA and the CHIPS act, which was met with as much, if not more, on the sort of internal domestic development side where we're going to subsidize the building of these things and we're going to recognize we need to train and educate people to work in these type of factories. And. And then the tariffs are there also as like a, you know, carrot stick. There's been, like, three different reasons for why Trump has done these tariffs, all of which contradict each other. Like, you can't raise all this money to get rid of the income tax if it's actually people are not going to buy these products and they're going to buy them domestically. It doesn't like, I think, why he's doing this.

[Mark Blythe]

Yeah, well, I think it's because Trump himself has a longstanding hatred of German cars and has a thing about tariffs and. Fair enough, right? Then there's the Whole coalition around him, the different people who want different things. So I try and think of it in terms of who's close to the king. So there's a bunch of people that will tell you the following story. Look, the problem is global imbalances. At the end of the day we've been getting for the past 30 years endless stuff from all these exporters. They don't consume enough. We consume too much. We're paying with the whole thing with digital dollars. And eventually one day they're going to say where's the real stuff backing us up? And it isn't there. And Covid taught us that we don't make basic things for ourselves. We have to re industrialize. Story one, right? Who's around that? Your national conservatives like Bannon, they're your main drivers. But also some of the macro people around like Besant and others, they'll believe this one. Then there's the other ones which are the hardcore tariffs for the sake of it, right. So the Navarros, et cetera. Maybe you get re industrialization or not. But ultimately what this is about is beating down China because China is the bad thing. So who's around that? That's your Rubio Republicans that have done a deal, right? And then also your Navarro. It's now you've got another set. You got your tech lords and you got your tech lords. Where do they sit in this one? They want two things. They want the university's research budgets because they're all massively over indexed on AI. But what do they also want? They want us not to be bad to China because their supply chains depend on it and they would like some tax cuts. So then they ally with the other, the Rubio Republicans, but not on the China stuff. And it's just like spin the wheel of fortune as to what you get each week. So the rationales are going to change according to which agenda is emergent within the White House that week. Whenever you hear about it's really about the income tax. That's because the tax cut guys have got his ear this week. Right. And I think that's the only way that I can make sense of this because the industrial, the re industrialization story makes sense. Right. Think about it this way. If you go to we had car.

[Sam Cedar]

Prices go through the roof because we didn't have, you know, the technology that we needed for, you know, the computers and the cars.

[Mark Blythe]

Yeah, just the chips. Right, exactly. Right. So you know, are you ever going to get to like complete autarky even in an economy the size of The United States? No. Meaning you'd make your, your own Ford F150s that cost a quarter of a million dollars and the rest of the world's driving electric. You don't want to go there. But if you think about the comparison with the ira, this was an attempt to build new green sectors behind protected tariffs. What we've got with Trump is if you think about the business model, most Republican states, they're all carbon based fuels, farms, fertilizer, food, feedstock, plastics, petrochemicals, that's what they do for a living. So the green stuff has to go because that's a mortal threat to their assets. So imagine this as doubling down on a kind of re industrialization strategy based on carbon assets, based upon a kind of imaginary of a 1950s, 1960s economy of male breadwinners, the social politics of the 1940s and the foreign policy of regional blocks which goes back to the 19th century. Now, can you actually execute all this? Probably not, but I think that's what's in the imaginary of all this stuff.

[Sam Cedar]

It's almost like a big pork bill, as it were, for his constituent. Yeah, and yeah, I mean that makes sense. And then the resent towards a Green New Deal is a function, is a.

[Mark Blythe]

You'Re protecting your assets. I mean, if the Green New Deal works right, you don't need carbon assets anymore. They go to zero.

[Sam Cedar]

And the, I mean the, the prospect of us making gas vehicles 25 years from now when the rest of the world is EV, is going to make it increasingly difficult for us and also vulnerable. It seems.

[Mark Blythe]

Exactly.

[Sam Cedar]

All of a sudden we're out on a limb.

[Mark Blythe]

And that's why you have 100% tax on EVs from China, even if we've now dropped the tax on everything else. So the tariff and everything else, the 30%. Because you're protecting that business model. And we know from history when you protect business models like this, they just get shittier over time.

[Sam Cedar]

We're protecting the wrong business model too. I mean, we could let in, you know, it's one thing to say we're not going to let Chinese EVs in here because we need to build our own EVs.

[Mark Blythe]

Right. But not to have any right, but.

[Sam Cedar]

To not like basically say we still want to have the horse and buggy seems to be a problem. Let's talk about what is curtailing Trump, because we saw the stock market dip, but it was really what's going on with the bond market that it really became sort of disciplinary for Trump.

[Mark Blythe]

Totally. So here's how I think about this. And it's a fancy word, but for once it's a fancy word in economics that makes sense. Right? Why are Treasuries special? They're special because everybody uses them as the savings asset for the world because there's so many of them. Most people don't know this, but more dollars are manufactured outside the United States than inside the United States in the form of dollar lending. So if you're Pakistan and you want to do some trade with Bolivia, you do so little trade with each other. Trying to clear that directly with each currency is a waste of time. Everything gets priced, everything gets billed in dollars. So there's a huge surplus of dollars. Cash dollars don't do you any good. They're a liability. What's the easiest asset? Turn it into a Treasury bill. You get paid 3% interest, you get all your money back 10 years from now. What could go wrong? It's the universal savings asset. Here's the fancy word. Treasuries are information invariant assets. What does that mean? The news cycle doesn't matter. A Treasury is a Treasury. A Treasury, it doesn't affect its value. What did Tom do on April 2nd? He made it an information sensitive asset because people suddenly went, oh shit, this guy's real. If he's going to do tariffs like this, then that whole Mar a Lago thing comes in where he wants us to swap out all our bonds for 100 year bonds and maybe we'll get some interest rate. This guy's really crazy. Either that he doesn't know what he's doing, either way, I want to get out of dollars. And you started to see a lot of selling of dollars. Some of this is unwinding a thing called a basis trade in the hedge funds. But a lot of it was people just going, okay, Maybe we thought 20 years from now we need to find an alternative, we need to start finding an alternative now. And once you do that, yields go up, price goes down, volatility increases. And that's what Disciplined Trump basically he broke the bond market.

[Sam Cedar]

So just, you know, in layperson's terms, the people investing in the treasury bond market are basically saying, we think that the, that treasury bonds are going to be just as stable down the road as they are today. But, but he undercut essentially the confidence in that premise. Even though maybe down the road people are like 50 years from now, 30 years from now, that may not be the case, that the dollar and he undercut that premise in such a dramatic fashion. Is there repairing that? Like does that confidence return or, you know, maybe in 10, 15 years, it turns out, okay, people are back to thinking, or are we at a point, is there a critical mass where it's like we started this ball rolling? Like, you know, China's dealing with the BRICs, Canada is looking to the, to the east or the west and not the south. Like, is there a, like a, like a tipping point? I guess, but if you're one of.

[Mark Blythe]

The people that believes the big global imbalances story, this isn't a problem. This is actually something you want. So the Euro's gone up and the dollar's gone down. You care about American exports. That's good news. If you think the problem is that you're getting real stuff and swapping it for digital dollars, which is just adding endlessly to your debt, then people buying less Treasuries is a good thing. So it's not as if this is actually complete error. In a way, it's part of the strategy if you really want to change the way the world works. It's a classic line of, there is a method in the madness here. Was it unexpected? Yes. Was it a reaction? Yes. Did it sober them up? Yes. But is this the direction of travel long term? I think that it is. I think that ultimately you're going to see this. Let's think about the level of tariffs now. We're down to 10% and 30%. Right. That's huge. Like you were saying right at the top. Right. That's kind of huge. This is designed to change the world.

[Sam Cedar]

What do they anticipate? What's the benefits that's going to happen in this vision of America that we're going to re. Industrialize, that we're going to. But the thing that seems just sort of strange, it almost seems like they're looking to create a, an underclass that. Or like a new type of underclass that has no mobility. Because simultaneously we are getting rid of like, you know, we're attacking universities, we're attacking, like, where we're. We're shutting out the HB1 type of people. Like, we're not bringing in like, we're, we don't seem to. It's like a fortress mentality.

[Mark Blythe]

I guess it is. And I'll give you Steve Bannon's version of this, because I heard him talk about it just the other day in dc. It's not that we're creating an underclass, we're basically bringing what is currently the underclass up. Because what we're going to do is ban every visa that we can and create a massive constriction on the labor supply so that nobody gets their lawn cut by somebody who's an illegal. For $5, you want to cut your lawn, you go cut your lawn yourself. And then what we do is we put these tariffs up and we bring manufacturing back home. And then what you end up is this kind of imaginary of like the prosperous 50s where men go to work in manufacturing and we solve our demographic problem not through immigration, but because women have more kids. Yes, I know how problematic this is, both socially and actually. But that's very much the vision. It's very much a kind of let's reinvent the sort of the good times of the 50s and 60s with the social policies of the 40s. That's clearly the imaginary. Does anyone really want to sign up for this? I don't think so.

[Sam Cedar]

But is it even possible? No, I mean, that's the other thing. It seems like highly unpleasant.

[Mark Blythe]

It's not possible. I mean, I said this to Byron directly. I said, look, you missed the boat because ultimately it's demographics. He just didn't have enough kids. And he's like, well then you just artificially tighten the labor market. There's plenty of people who are not working that could be brought into the labor market in our own country. We don't need these foreigners. That's clearly the way that we they thinking about this. And if you expel 12 million people who are currently working, you will create a shortage of labor and wages will go up.

[Sam Cedar]

But it doesn't seem like there's any reason for it to go up in manufacturing as much as it would. Just like the service economy, like we have to fundamentally change the economy, which means that we would have to reshore manufacturing. And it's hard to imagine that that's necessarily going to happen without any type of. Because people are just going to wait out Trump, it seems to me. Right. I mean, a lot of these, I mean they're just going to wait out Trump because they just don't think it's going to be sustainable.

[Mark Blythe]

And it depends on the industry you're in. I mean, if you're Apple, I mean, you can't build an ipod here. It's a global product. You literally can't do this. This is an impossibility. If your pharma. The executive order that came out today on pharma is really interesting. It's specifically designed to equalize the prices between the US and the eu. And a lot of pharma is made in the EU banked basically the intellectual properties controlled by officers over there because they pay lower taxes, et cetera. And if you change that calculus, you can get pharma back up. That's pretty straightforward. How many jobs do you create doing that? Not nearly as many as you think. Right. So you can do things. Is it going to end up in this kind of like, you know, 1950s world of a rebirth of manufacturing? No. I mean, you look at modern factories, they don't have any people in them, they've got robots in them.

[Sam Cedar]

Well, we'll be all fixing the robots plan that. I can't remember what's his name now, said the commerce Secretary. We're going to be just robots.

[Mark Blythe]

Yeah. I mean, so again, you know, once you start to get into this, you may mean you can be on the left or the right and support re industrialization for various reasons. Right. Whether the national security reasons, whether they're sort of income equalization reasons. There's loads of reasons to talk about this, but usually when you do it, you realize that tariffs alone are insufficient.

[Sam Cedar]

Right.

[Mark Blythe]

Anybody who's ever done this has done it with a full industrial strategy. Which means that if you're basically trying to shoot your, shoot your universities, your training institutions whilst kneecapping your state and you're putting all the weight on tariffs, it's just not going to happen.

[Sam Cedar]

Where is this going to leave us? I mean, this is so in flux that it's hard to say, but it feels like there's inevitable, there's a certain inevitability at this juncture, regardless of if he went back down to we're just going to do 10, 10 and 10, which is also, I find sort of like the whole point is that we beat them. And if we're both at 10 for reciprocal tariffs, it seems like it really doesn't have done anything except for basically increase inflation slightly in both countries. But where, where is this going to leave us? Sort of short term and, and in mid term.

[Mark Blythe]

So short term you're going to already have a supply shock from all the ships that aren't crossing the Pacific. Right. So we know that there will be shortages of certain things, et cetera, game consoles, toys, et cetera. I mean, are these critical national security issues? Probably not. Is it going to hurt some people? Definitely. Will we get that supply back from somewhere else? Probably. The real risk is the volatility, the fact that there's so much uncertainty and to this the markets have rallied because now we have a 30% tariff on China. Let's think about that for a minute. You're rallying because you've got a 30% tariff on the second largest economy in the world. We're still on the 90 day pause. Who knows what he's going to do? He might just come out and go, another, here's another tariff schedule. We'll have this one. Right. So when you're a business and you're trying to plan, you don't know what to do. And the way that you destroy economic growth is you generate huge amounts of uncertainty. Because when you're uncertain about the future, there's a phrase in finance describes this which is cash is king. You go to cash. Why? Because it gives you options. You don't have to commit to anything. You're not going to go, all right, lads, we're all in on re industrialization. Let's do a five year, seven year commitment. Let's build all this stuff in New Jersey. Let's go. And then three weeks from now, the policy changes.

[Sam Cedar]

Right.

[Mark Blythe]

Everybody's frozen. And the definition of a recession is basically everybody's frozen, nobody invests. So you're kind of baking it into the cake in the longer term simply because of the uncertainty associated with the environment.

[Sam Cedar]

And the irony is every time he tries to make it better or is pulled back by someone like Scott Bessant, it just indicates that you can't rely on anything more than a 30 day window or a 90 day window. All right, let me ask you this. In terms of like a Democratic response, there is sort of, we have this antitrust movement that, that in many ways and pro labor that in many ways define the Biden administration, at least relative to past Democratic administrations. There is a sort of a burgeoning deregulation move movement within the Democratic Party right now. Give me your sense of that, the like, the abundance thing and where how Democrats respond both in terms of like what may exist in terms of our economy in the event that they're in a position to do something about it two or four, you know, two or three years from now. And what will address these problems which have translated at least into, you know, Donald Trump winning the election two out of three times.

[Mark Blythe]

Well, let's remember that, you know, although Lina Khan was very good in pushing things forward, it's actually this administration that's got Microsoft and Google in the dock.

[Sam Cedar]

Yep.

[Mark Blythe]

Right. So there's a continuation there. So you can't go back to that as you're safe. Look at us, we'll do this because they're already on this one. Right. In terms of labor, you've essentially lost the Working class vote completely to the Republican Party. So you need to do something really drastic. And in a sense, what that is. And again, this comes from a conversation with Bannon over the weekend. I think I was in D.C. is the Democrats have to discover the left populism on economics, because if you don't, you've got nothing. Because at the end of the day, and this is a line from a guy called Henry Farrell, the Democrats have become inadvertently the party of the status quo. Everything's fine for the top 20%, right? What was it that Kamala actually wanted to change? What exactly were the suite of policies that were going to be transformative in American life for loads of people who feel that the current system isn't working for them? There was nothing there. It was literally a campaign based around, oh, look, I got another celebrity endorsement. So you have a bunch of people who are sort of the old guard of the party who still feel this way, don't touch my 529 college savings plan. It's very much for the top 20%. The Whole Foods crowd, if you want to put it that way. And they've got nothing to offer dollar shoppers. And until we have that kind of agenda, then I don't think the future looks very bright. Now who's trying to do this? AOC is trying to do this. Bernie's trying to do this. But their own party, the mainstream of their party, hates them. So there's this kind of horrible. It's like the worst type of passive aggressive couple getting divorced, where they won't talk about it in public, but everyone knows that they're feuding in private. And that seems to me to be the current state of the Democratic Party.

[Sam Cedar]

What do you think about this? I mean, there is this big debate about this abundance agenda, which is sort of hard to pin down, it seems to me a little bit. You know, maybe there's specific local things, but as a broad movement, it's a little bit hard to pin down. But how much of what we are dealing with from an economic standpoint has to do specifically with inequality? I mean, that question gets. Or that phenomena can be addressed as like, we have a problem with the oligarchy, or we have a problem with billionaires, we have a problem with millionaires. The idea being that we have such an unequal distribution of money that we have a commensurate unequal distribution of political power. And this is both maintaining the status quo and inhibiting our ability to provide for more people.

[Mark Blythe]

I wouldn't differ from that at all. I think that's entirely correct. I mean, the big problem with the macroeconomically is when you've got so much wealth and income skewed to the very top that your economy is driven essentially by rich consumers, which means that the people at the bottom, who the vast majority of people, are living on very expensive credit, and that's not a sustainable model over the long run because ultimately they have to have real wage growth, but that would be negative against the gains of the top 20%. They're the people that fund campaigns, politics, the whole law. Again, if you think about the Democratic Party versus the Republican Party, I remember I went on Chris Lydon's show, and Chris is talking about, look at the Cabinet. It's a cabinet of billionaires. And I was like, who do you think funds the Democrats? Our billionaires are nicer than your billionaires. That basically seems to be the argument at this point. And nobody really wants to do anything serious about wealth inequality, which is why I think it's fascinating when you get sort of these random tweets from Trump about, you know, I think we should actually raise taxes, but then they tell me, I'll lose the election if we do it. We should be able to do this. The weirdest thing about this moment is the possibility. Space for what you can actually think out loud in the Republican Party is actually wider than in the Democratic Party, I think that is. So when you've got to that moment in history where they'll actually talk about this stuff openly. And the old guard, your Rubio's, your traditional Republicans are like, just, no, no, no, tax cuts for me. Tax cuts for me. But the Bannon wing is entirely about, like, everybody earning over a million should pay 40% tax. Nobody in the Democratic Party send that. Apart from AOC and apart from burning.

[Sam Cedar]

Yeah. How much of that wealth inequality do you think is driving, like, the inflationary pressures and things like housing and whatnot? I mean, of our housing shortage is a function. You say we're not building houses like we did in the 80s. We're building it so that it's an asset and they're out of reach development that's going on.

[Mark Blythe]

Have you ever seen a condo go up that isn't called a luxury condo?

[Sam Cedar]

Right, right.

[Mark Blythe]

There you go. Right. So, yes, the assets and incomes of the top 20%, top 10%, are basically geared towards acquisition of a series of assets that are in short supply, which drives up the price. If you want to do something about inequality. And, you know, I've told. I've said this to people in the Labour Party in Britain and Democrats and anyone who will listen, just build houses. It's amazing what would happen if you'd build houses. Because to do build houses, you need to revamp all your training. And housing these days is very different from housing back then. You're talking about different materials, different needs. You need H Vac people, you need plumbers, you need sparkies, electricians, you need all, you need to generate all these skills. Once you do that, you create not just new skills that are transferable in the green sectors and all this sort of stuff, right? You're upskilling the whole, the working class and you're giving them places to live, which means you create labor mobility. There's so much you could do for inequality just by going through that channel. But if you do that, guess what? Your luxury and condo in Boston can't cost a million and a half anymore. And that's the people who vote for the Democrats.

[Sam Cedar]

Well, that is the always the dilemma, right? Like the incumbent wants to maintain housing prices and the challenger wants to lower housing prices. And so would you start in that. As you're talking about that sort of like chain of events in terms of like dealing with housing, just simply say we're going to expand vocational training, we're going to put more resources into it. We're going to have an accelerated training program so you don't have to be an apprentice as an electrician for like whatever four or five years. You can get out there quicker and start to make some money. But that means that we're going to just, we're going to put more money into training.

[Mark Blythe]

Yeah, and also this is where the deregulation on the left thing comes in as well. I mean, the abundance book got a lot of attention, but it's a really good one by a guy called Mark Dunkleman called why Nothing Works. And it really goes into this in detail. I mean, there's a whole bunch of things as to why we can't build houses. Have you ever heard the conservation easements? This is one of the best scams in the tax book, right? So basically you get a 40% tax write off if you buy a big piece of land and say it's for conservation, you've got a nice house in a nice part of the world, you and your neighbors get together, you buy all the land around, you get a 40% tax rise, and you just sit and watch as the land values go up and the price of your house goes up and nobody gets to build anywhere near you. And this is all because of process regulation, you have to make sure everything goes and everybody's game the system out. It's incredibly hard to build anything anywhere. So there's a whole left deregulation agenda which would allow us to do not just the skilling, but also the building. And if you did this, this would create an enormous difference to the economy overall.

[Sam Cedar]

How do you get there though, without. I mean, how, how do you. I mean, there's a quality to that that strikes me as, you know, I could fly if I had wings, right?

[Mark Blythe]

I mean, you can do it because.

[Sam Cedar]

You'Re still constrained by the money that is taking advantage of the moneyed interests that are taking advantage of these regulatory, you know, sort of like loopholes, but just sort of like, you know, niches. They're also going to.

[Mark Blythe]

Oh, yeah, you got to fight multiple battles. You got to close the loopholes, you got to simplify the regulations, you got to give the right incentives. Nobody says this is easy. This is a problem that's built up over 30 or 40 years, but it's a crisis point. I mean, you can't spend in sort of a non hub coastal city like think somewhere like, what's a good example of this? Like Austin, Austin, Texas. Like you spend 50% your income on rent. It's an utter madness. It can't continue. But unless you're willing to expand the supply side and allow people to build more houses, it will continue until it becomes completely unsustainable. And that's where, if I were in the Democrats, that's where I press on that and try and get this done. One way to think about this is where's the money coming from? Well, people in the private sector understand this, that a house is an asset. If you're a bank, it's a liability because you want the mortgage payment, right? But to most people, these are assets. If you're actually an owner of 100,000 houses, right, these are very important assets. And if you don't build crap and you rent them out to people and you borrow at 4%, but you make 5%, that 1%, your quids in. Why can't the government do that? Why can't state and local governments do that? Why can't state and local governments, in cooperation with B Corps with 501C3 with the private sector get together and do this and then we can both share in the gain that comes from it. We'd end up with less debt and more assets, right?

[Sam Cedar]

Well, I guess, I mean, from a sequencing standpoint, I think you got to take out those money and interest who are going to prevent that from happening because they don't to want, want to lose the value of their homes.

[Mark Blythe]

Absolutely. And they're your major Democratic donors. So you've got a big problem with this. But there's a good line in a book by a guy called Brett Christopher is talking about, as he calls it, asset manager capitalism. And he says, you know, when the big asset managers started to buy up private housing and all this sort of stuff, you know, en masse. BlackRocks and people like this. What's that? How do you get them to go out? Just show them cranes. The minute they see the cranes going up, they're gone. They're on to the next thing. So many of these things are paper tigers. They've gotten away with them for 40 years. Not because they're powerful, because nobody's ever tried to take it away.

[Sam Cedar]

Mark Blythe, director of the William Rhodes center for International Economics and Finance, professor at Brown and the author, or co author, I should say, of new book Inflation A Guide for Users and Losers. We'll link to that at Majority fm. Thanks so much for your time today. Really appreciate it.

[Mark Blythe]

Always great to talk to you, son.

[Sam Cedar]

We're back. Sam Cedar, Emma Viland, Majority Report folks, gonna head into the fun half. Just a reminder, it's your support that makes this show possible. You can become a [e-mail] when you do, you not only help this show survive and thrive, but you get the free half free of commercials and the fun half. You can IM us. Matt, were you about to add something?

[Matt Binder]

No, I'm ready to plug my stuff.

[Sam Cedar]

Oh, all right. Also, don't forget, just coffee, co op, fair trade coffee, hot chocolate, use the coupon code. Majority get 10% off. Matt.

[Matt Binder]

Yeah.

[Sam Cedar]

Did you have anything else to add.

[Matt Binder]

On my stuff where you can give me money? It's a patreon.com left reckoning. USAMandRabi comms director of Justice Democrats came on talking about this Donovan McKinney challenge to Sri Thanadar, one of the weirdest representatives in Congress right now, also billionaire, which is, you know, but I repeat myself. And yeah, patreon.com left he needed the fat chat to get access to that.

[Emma Vigeland]

Yeah, he's the guy that it was just such a coincidence that on the day that this primary challenge was announced, Thanadar said that he was introducing articles of impeachment against Donald Trump, which went absolutely nowhere. And they asked Hakeem Jeffries about it and he was like, he didn't Even consult with me. Not that you have to do that. But if you're going to. If you're earnest about the articles of impeachment thing and that's not just trying to distract from a primary challenge, you might want to check with the leader of your party in the House before you do such a thing.

[Sam Cedar]

So one I am. Before we go. Just came in. John from the Berg. That interview was stellar. God. I feel like I learned so much. I thought I had an understanding on every time I watch this show. Great work to whole Mr. Crew. And Emma was glad it was a good weekend. Even if you gave out your opsec, Even if you failed on the OPSEC there.

[Emma Vigeland]

I did a little.

[Matt Binder]

Well, I was going to South Carolina.

[Emma Vigeland]

Yep. Yeah.

[Sam Cedar]

Quick break. Fun half. Three months from now, six months from now, nine months from now. And I don't think it's going to be the same as it looks like in six months from now. And I don't know if it's necessarily going to be better six months from now than it is three months from now. But I think around 18 months out we're gonna look back and go like, wow. What? What is that going on? It's nuts. Wait a second. Hold on. Hold on for a second. Emma. Welcome to the program. What is up? Everyone? Fun pack. No. M. You did it.

[Emma Vigeland]

Let's go, Brandon.

[Sam Cedar]

Let's go.

[Mark Blythe]

Brandon.

[Sam Cedar]

Bradley, you want to say hello?

[Matt Binder]

Sorry to disappoint everyone. I'm just a random guy.

[Sam Cedar]

It's all the boys today.

[Alexandria Ocasio-Cortez]

Fundamentally false.

[Emma Vigeland]

No. I'm sorry.

[Sam Cedar]

Women. Stop talking for a second and let me finish.

[Alexandria Ocasio-Cortez]

Where is this coming from?

[Emma Vigeland]

Dude.

[Sam Cedar]

But. Dude. You want to smoke this Saturday? Yes.

[Mark Blythe]

Hi. You're safe.

[Sam Cedar]

Yes. Is this me? Is it me? It is you.

[Mark Blythe]

Is this me? Hello?

[Sam Cedar]

Is this me? I think it is you. Who is you? No sound. Every single freaking day. What's on your mind?

[Mark Blythe]

We can discuss free markets and we can discuss capitalism.

[Sam Cedar]

I'm gonna go skylight. Libertarians. They're so stupid. Though common sense says. Of course.

[Emma Vigeland]

Gobbledygook.

[Sam Cedar]

We nailed him.

[Emma Vigeland]

So what's 79 plus 21 challenge.

[Sam Cedar]

Man. I'm positively quivering. I believe 96. I want to say. 8572-1035-5011-0389. 11. 3. $400. 1900.

[Emma Vigeland]

5. 4.

[Sam Cedar]

$3 trillion.

[Mark Blythe]

Sold.

[Sam Cedar]

It's a zero sum game.

[Emma Vigeland]

Actually. You're making me think less.

[Sam Cedar]

But. But let me say this poop.

[Alexandria Ocasio-Cortez]

You can call it satire.

[Sam Cedar]

Sam goes satire on top of it all.

[Mark Blythe]

My favorite part about you is just.

[Sam Cedar]

Like every day, all day. Like everything you do. Without a doubt. Hey, buddy. We see you. All right, folks, folks, folks, folks.

[Emma Vigeland]

It's just the week being weeded out, obviously.

[Sam Cedar]

Yeah. Sun's out, guns out. I. I don't know. But you should know, people just don't.

[Matt Binder]

Like to entertain ideas anymore.

[Sam Cedar]

I have a question. Who cares?

[Matt Binder]

Our chat is enabled, folks.

[Sam Cedar]

I love it.

[Emma Vigeland]

I do love that.

[Sam Cedar]

Gotta jump.

[Mark Blythe]

Gotta be quick.

[Sam Cedar]

I gotta jump.

[Mark Blythe]

I'm losing it, bro.

[Sam Cedar]

2 o' clock, we're already late, and the guy's being a dick. So screw him. Sent to a gulag.

[Emma Vigeland]

Outrageous.

[Sam Cedar]

Like, what is wrong with you?

[Mark Blythe]

Love you.

[Sam Cedar]

Bye. Love you.

[Mark Blythe]

Bye.

[Sam Cedar]

Bye.